With a year to go until the next US presidential elections, it does not seen too early to start thinking on what the election means for investors.
In this interview, Eugenia Jiménez talks with Patricia Justo, head of fund selection at A&G Banca Privada in Madrid, about the challenges and/or opportunities that US stocks might present in the coming 12 months.
How likely do you think leading indicators such as the inverting of the yield curve will actually be followed by a recession in the US in the coming year?
Being an European investor, we have tended to overweight Europe over the US for the past years, compared to a global index. This have been proved wrong, since the US has continued to outperform almost any other market."
We obviously tend to look at the past looking for similar scenarios to the current one, in order to assess what may follow in the cycle. We have seen that the inverted yield curve has been a great indicator for recession in the US, albeit with a lag of 12-18 months, so we may be still far from a recession.
Besides, we have to bear in mind that bond markets are pricing a recession, but equity markets and real economy in the US are not.
With an election year pending, how likely do you think it is that the Trump administration will do all it can to keep the local stock market buoyant?
If we compare the size of the US financial assets with US GDP, we can see that the first one is six times the size the second. Wall Street has become more important that main street for US economy, and both US administrations and the Fed have realised that.
Even if it is not part of the Fed's mandate, we can expect that they will continue to apply measures to support the markets, whether it is on an election year or not.
Are you re-assessing your US/North America exposure? If so, why?
Being an European investor, we have tended to overweight Europe over the US for the past years, compared to a global index. This have been proved wrong, since the US has continued to outperform almost any other market.
We are now more neutral in terms of geographical exposure, and do not feel it is the time to increase our US exposure for valuation reasons.